A guide to divorce settlements

 

If your marriage has broken down, it might be challenging to understand how your assets are going to be divided between you and your former partner. If you are confused about what the divorce settlement process looks like, or how it works, read our guide to see what you might be entitled to.

What is a divorce settlement?

A divorce settlement is classified as an arrangement or understanding between two adult parties who have agreed to legally separate. It is often required when the divorcees have a number of financial assets tied together, requiring them to come to a fair and equal agreement on how to split them. 

It will also cover any responsibilities which need to be maintained as a result of the relationship – such as the wealthfare of a child or the repayment of debt. Other factors which are often taken into account include: 

  • Investments made together 
  • Joint retirement plans 
  • Tuition fees for any children 
  • Real estate owned
  • Any car which is in both your names 
  • Joint bank accounts 
  • Any clubs or memberships you’re both a part of 

In essence, any financial or legal obligation which you’ve jointly entered into with your spouse needs to be assessed and resolved.

Leading causes of divorce

The causes of divorce that can be cited are unreasonable behaviour, two-year separation with consent, five-year separation without consent, adultery, and desertion.

The most recent government statistics show the most common grounds for divorce is unreasonable behaviour, in both opposite-sex and same-sex marriages.

  • 49% of wives in opposite-sex marriages cited unreasonable behaviour
  • 35% of husbands in opposite-sex marriage did the same
  • 70% of male same-sex divorces cited unreasonable behaviour
  • 63% of female same-sex divorces did the same

Overall, the most recent causes of divorce statistics in England and Wales are as follows.

Cause Percentage of divorces
Unreasonable behaviour 46.5%
Two-year separation with consent 26.7%
Five-year separation without consent 15.4%
Adultery 10.5%
Combination of adultery and unreasonable behaviour 0.5%
Desertion 0.5%

Meanwhile, in a study on divorce prevention, respondents listed the following as a cause of their divorce:

Reason Percentage
Lack of commitment 75%
Infidelity 59.6%
Too much conflict 57.7%
Getting married too young 45.1%
Financial problems 36.7%
Substance abuse 34.6%
Domestic violence 23.5%
Health problems 18.2%
Lack of support from family 17.3%
Religious differences 13.3%
Little or no premarital education 13.3%

Of the financial problems, examples include:

  • Financial infidelity (such as secret bank accounts or purchases, undisclosed debt, or gambling addictions)
  • Credit card debt
  • Poor spending decisions (such as spending more than your combined income)
  • Refusal to compromise when it comes to money
  • Making major purchases without talking to your spouse
  • Unexpected bills

Considerations in a typical UK divorce settlement 

Every divorce is different – but that doesn’t mean there aren’t common themes which are addressed in most settlements. Let’s take a closer look at what you can expect to experience in an average UK divorce settlement.

Court considerations 

Before any decisions are finalised, the court needs to take a variety of important considerations into account. These will determine how your assets are going to be divided. These considerations, which assess both parties equally, usually include things like:

  • Income and earning capacity 
  • Financial needs
  • Standards of living 
  • Their age
  • Physical or mental disabilities 
  • Contributions towards assets 
  • The conduct of each party during the divorce process 

These all play a huge role in how a settlement might be made. Let’s explore some of the most important in a bit more detail to understand the types of factors which will be assessed.

Income

While it is expected that both parties should always attempt to maximise their own earnings (so as to not be reliant on their partner), it may have been the case that one party was unable to do so because of a medical condition or childcare needs. 

The ability to work or not is huge when deciding how much of a split is assets should be made. If the court deems that a spouse was unable to work due to the reasons we’ve listed, they are likely to receive more in the settlement than a partner who simply decided not to work.

Financial needs

The court must also decide exactly how much money each party needs to receive in order to continue living the standard of life they are accustomed to. Again, a number of considerations are kept in mind here:

  • Standard of living throughout the marriage 
  • Physical and mental abilities 
  • The age of both parties 
  • The contributions made by each party 

In the case of the contributions, if one person has been seen as the main wage earner, and the other as key homemaker, they could be seen as having made an equal contribution. 

If one party has made a significant contribution which the other has not matched, this will also be taken into account. However, the needs of both parties will remain the priority.

Home ownership

The home is often one of the most expensive matrimonial assets. Usually, property tends to be owned in one of two ways:

  • Solely by one spouse
  • Jointly owned and mortgaged 

In the case of the first example, it is possible for the court to decide to alter the ownership. This is decided by how important the home has been as part of the marriage (as in, if both parties have lived there for an extended period of time). 

If you have a joint mortgage, it is easier in theory to divide the asset. However, it could be the case that the lender refuses to release anyone from the mortgage. If that is the case, the party who remains in the property needs to indemnify the other against all future liabilities.

Child custody

As children will always be protected in any divorce, the court will make a lot of their decision based around which party is retaining custody. This spouse will often be given more weighting when the settlement is made, in order to ensure they are able to maintain the welfare of their child or children. 

This could mean:

  • Being given more money in the settlement 
  • Being given ownership of the house, even if they weren’t the primary contributor 
  • Receiving more money from the sale of other assets 

While it might seem unbalanced, the court will always prioritise the needs of any children in the marriage ahead of adult wage-earners.

Divorce statistics in the UK

According to the most recent statistics:

  • There were 107,599 divorces amongst opposite-sex couples in 2019, compared to 90,871 in 2018.
  • There were 822 divorces amongst same-sex couples in 2019, compared to 428 in 2018. 72% of the 2019 divorces were between female couples.
  • The average length of marriage before divorce was 12.5 years in 2019, compared to 12.3 years in 2018. 
  • The Office for National Statistics speculated that divorce rates rose in 2019 because of a backlog of paperwork. This trend may continue in the wake of the pandemic.
  • 42% of marriages end in divorce.
  • Despite the increase in divorces in 2019, the overall trend has been heading downwards since 2003 (the most recent peak). 
  • Opposite-sex divorces are now 30% lower than they were in 2003.
  • The ONS cites changes in attitudes towards marriage and divorce as one reason for the decline in divorce rates. 88% of couples now cohabit before marriage. 
  • 62% of divorces in 2019 were petitioned by the wife.
  • The number of same-sex divorces has increased as the same-sex married population has grown, following the legalisation of same-sex marriage in 2014.

How assets are split – what am I entitled to in my divorce settlement? 

As we have discussed, every divorce will be different. The divorce settlement process itself though is fairly similar, no matter what the situation. You will be entitled to a percentage of your joint assets which you, your former spouse and the court decide is fair. 

With court considerations also taken into account, let’s now look at how the splitting of these assets might be broken down – as well as how to work out what your assets are worth in the first place.

Calculating your assets 

Before any sort of settlement can be agreed, you need to identify and value your matrimonial assets. These include things you own together, as well as money or debts which are tied up in both your names. Good examples of common matrimonial assets include:

  • Joint debts 
  • Pensions 
  • Money in the bank
  • The family home and other property jointly owned
  • Businesses
  • Vehicles 
  • Any other items owned within the home 

Working out how much you own in these assets takes a bit of time – but is very important in ensuring the settlement is fair and accurate. When working it out, keep the following in mind:

  • Property. This means the value of any property you own, as well as the remaining amount you have left to pay on your mortgage. 
  • Savings. This should be easier to work out, as it’s likely to be one or a collection of totals which can be easily accessed and assessed.
  • Household income. This means the disposable income of both parties, after bills and other payments are taken into account.
  • Debts. You will need to add together debts like overdrafts, finance payments on cars, all loans, credit cards and any other financial commitments you have.  
  • Investments. If you’ve made any financial investments, you may need to turn to a financial advisor in order to get an accurate valuation.
  • Other items. Anything expensive you own (such as jewellery, vehicles, furniture and even rare collector’s items) also need to be valued and taken into consideration. 

Once you have your valuation, you will have a much clearer picture of how much you are each entitled to, as well as the total figure that needs to be divided. It is at this point it might start to become clearer as to what each party can expect when they separate.

The family home 

Splitting the home is arguably the most stressful part of a divorce settlement. It is important that all parties are given a fair and equal say in how to manage the financial separation of the home. There are a handful of options for couples looking to assess how the home might be divided:

  • Buying out. This is probably the simplest solution, if one party has the money readily available. It sees one spouse buying their partner’s 50% share of a home outright, giving total control to them. 
  • Selling and splitting. The home can also be sold, with the amount made being split evenly between the two parties. This is an easier solution if there are no children involved, and both spouses have somewhere to live while the sale is being processed. 
  • Leaving the ownership unaltered. One partner would stay living in the house, but the ownership would be unchanged. This means if the house was ever sold, both parties would benefit from the sale.  
  • Transferring value. In this instance, the spouse departing the home would maintain a stake in the property, despite not legally owning any of it. 

For the sake of all parties, it is best if an agreement can be reached amicably. If not, it is those court considerations we previously mentioned which will determine how this asset is divided.

Mortgage 

A mortgage must continue to be paid, regardless of your marriage ending. If both your names are on this, you will need to take joint responsibility for paying it back, even if one of you no longer lives in the home. 

Some common options for a settlement here include:

  • Selling the property outright, paying off the mortgage and splitting the remaining funds
  • Transferring full ownership of the mortgage to the spouse living in the home (if the lender agrees)
  • Continuing to jointly pay the mortgage 

As we’ve discussed, a lender may refuse to change the names on the mortgage. If that is the case, indemnity needs to be filed for. While this absolves one party of any legal obligations to pay debt, their credit score may still be affected if the mortgage payments are missed. 

Business assets 

Business assets are often treated in the same manner as matrimonial assets. If you own a company together, you can either reach an agreement on how it is to be split, or let the court step in again and decide for you. 

In the case of a family-run business, both parties are likely to be given some form of weighting in a court decision – even if one of the spouses never actively engaged in the company. It could be that they provided matrimonial support (for example, staying home to look after children), which in turn allowed the other spouse to concentrate fully on their career.

Inheritance 

While it might have been left to just one party, inheritance can sometimes fall into a tricky middle ground if it has played a significant part in the financial security and structure of a marriage. In fact, this is one of the considerations a court makes when deciding how inheritance might be split. 

They will assess:

  • How impactful it has been as part of the matrimonial home
  • When it was received 
  • If there are dependent children in the marriage who might benefit from it 

When it comes to the dividing of inheritance, here are some key considerations to keep in mind:

  • If inheritance is transferred to joint names, or serves as a key component of the couple (or family), it is likely to be considered part of the matrimonial assets in the eyes of the court.
  • If someone received inheritance shortly after the breakdown of a marriage, it is far less likely to be considered a part of the matrimonial pot of assets. 
  • The needs of the family (especially younger children) are always the primary concern when deciding how inheritance is to be split. 

It is also important to always remember that each individual case will be determined by not only these factors, but also the circumstances surrounding both parties and their dependent children. 

Pensions 

If a party has any spousal benefits as part of their pension scheme, they may lose this as a result of the marriage being dissolved. They will also instantly lose any benefits which they might have been able to access from the other person’s scheme. 

But that doesn’t mean your pension will definitely be untouched. There are a few ways a pension might be affected in a divorce settlement:

  • Pension sharing. Once your divorce has been finalised, you will be able to take a percentage share of your former partner’s pension scheme. In some cases you can even join their pensions scheme, while in others you can transfer these funds into a scheme of your own name.  
  • Pensions offsetting. This means you or your partner can use your pension to offset the price you might owe from another asset. This can be handy if your partner was awarded a greater share of other assets. 
  • Pensions attachment order. In this instance, one spouse might be able to access part of their former partner’s pension as soon as they start to withdraw it. This is sometimes less popular as an option, as it means you’re reliant on your partner taking their pension before you can claim anything. 
  • Deferred lump sum. This is similar to an attachment order, but instead of continually taking a cut of their pension, you’ll receive a one-off lump sum as soon as they take their pension. 

Savings 

Savings are one of the more simple parts of a divorce settlement to hammer out. It should be fairly easy to see who contributed what financially. This theoretically makes it simple for both parties to claim what was originally theirs.

That in mind, if one party needs to pay any form of spousal maintenance, it might also make sense for them to use their savings as a means of paying some of this back to their former partner.

Spousal maintenance 

If one of the divorcees lacks the means to financially support themselves after a separation, it might fall on the other to provide what’s known as spousal maintenance, in order for them to continue their standard of living.

This will be the case if any of the following factors apply:

  • Their standard of living would significantly drop without it 
  • They have any special needs or disabilities 
  • The age of the divorcees in question 
  • The total length of your marriage 

The length of time you will have to pay the maintenance as part of your divorce settlement will also depend on their situation. 

Child support will also have to be paid if there are any dependents which you are legally tied to. The court can enforce a percentage payment, which could come directly out of your salary, to ensure all forms of maintenance are being abided by. 

Top financial mistakes to avoid

  • Not setting a budget during the divorce. It is an expensive time and you will probably have to cut back on everyday spending. Figure out where you can save money as soon as possible.
  • Not freezing all joint accounts. You and your former spouse are equally liable for these debts. You would have to pay them if they did not.
  • Believing the reason for the divorce affects the financial outcome. In fact, this happens very rarely, unless one partner was violent, for example, or exhibited reckless spending habits.
  • Allowing emotion to take over. It may take a lot of effort, but being calm and sensible can help you both come to a financial agreement sooner. You could try mediation if you find this difficult. A neutral third party can help with discussions and lead you towards an amicable solution, preventing a later visit to court.
  • Holding on to the family home. Some people overlook how much it would cost them to keep paying the mortgage and bills once the divorce has been finalised.
  • Not seeking help. A lawyer will know your rights and work to get the best outcome for you, which will cost less long term.

Finding a lawyer to manage your divorce settlement 

There are a lot of factors which go into dividing and separating your matrimonial assets. To make sure you are given a fair assessment, and protect what is rightfully yours, it is vital you turn to a legal professional who has dealt with divorce settlement proceedings in the past.

Manak Solicitors are experts in the field of family and divorce law. If you would like to discover how we can help you with this challenging process, be sure to reach out to us for a chat. We look forward to hearing from you.

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